The Emir of Kano and former governor of the Central Bank of Nigeria (CBN), Muhammad Sanusi II, has said that the naira, at 300 to a dollar, needs no further devaluation.
Sanusi said all the CBN needs to do is to make the Bureau de Change (BDC) segment of the market liquid, and watch the gap between official and parallel market close, with investors bringing in more forex.
“My public position is that if the Central Bank can improve on its management of foreign exchange, provide liquidity to the parallel market, get a convergence between the BDC rate and the official rate, also keep these yields where they are, that will help to attract the foreign exchange that we need to stabilize in the short term,” he told Daily Trust.
“While I think the naira is undervalued, certainly if you look at the purchasing power parity, when you look at the nominal exchange rates, when you look at the rate of inflation, it stands to agree that even at 300, the naira will be slightly undervalued,” Emir Sanusi said.
The current naira/dollar exchange rate is okay
“Fundamentally, I think the exchange rate is okay as it is. What is obviously the problem, is not the fundamentals, it is the managing of the regime. This will give people the confidence that we are indeed having a flexible exchange regime and also that we are closing the gap between the official and the parallel market rates. That can only happen when we have liquidity within that segment,”Emir Sanusi discloses.
He said the central bank decided not to sell forex to BDCs, adding that the segment of the market where the naira is trading at 470 to 490 is a very shallow segment, which, however, has impact on the entire market.
“What you said is for N470-N490 to the dollar might be a very small volume in transactions. But, it does have the impact of creating the impression that it creates a huge gap.
“So if we could just provide liquidity to that segment and close that gap it will help a lot. In terms of where the naira is today, there is no need for any further devaluation based on available fundamentals. We only need to take steps to address confidence.
“We spent one year defending an exchange rate regime that everybody knew would not work. Chavez in Venezuela tried it, Mugabe in Zimbabwe and Rawlings in Ghana tried it.
“It never works so everybody knows it will not work for Nigeria, unless oil prices miraculously rebound. So the real issue is the confidence issue. We’ll need to convince the world that we had an error in the past and have corrected it now.”
The local currency was trading at 450, 550, and 495 to the dollar, pound and euro, respectively, at the parallel market.